Traditional IRA Max Contribution
Traditional individual retirement accounts (IRAs) offer tax-deferred savings, which means money contributed can be deducted from your income taxes. However, the Internal Revenue Service limits the annual amount of contributions.
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Limits
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The IRS limits how much you can contribute to your traditional IRA each year, and adjusts the amount periodically. For 2010, you can contribute up to $5,000 if you are under 50 or up to $6,000 if you are 50 or older. Contributions are fully tax-deductible, up to certain income levels.
Earned Income
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If your earned income for the year falls below the contribution limit, you cannot contribute more than your total earned income. For example, if you have a contribution limit of $5,000 but only $3,000 in earned income, your maximum allowed contribution would be $3,000.
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Misconceptions
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If you can contribute to an employer-sponsored plan, such as a 401(k) or 403(b), you can still make a contribution to a traditional IRA. However, you may not be able to deduct the contribution if your modified adjusted gross income exceeds a certain level.
Considerations
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The annual contribution limit applies jointly to traditional and Roth IRAs. That means if you contribute to both types of IRAs, each dollar you contribute to a Roth IRA reduces the amount you can contribute to your traditional IRA that year.
Warning
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If you exceed the contribution limit, you must pay a 6 percent tax penalty on the excess contribution. The penalty is assessed each year that the money remains in the IRA account.
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